Automotive News - February 11, 2008 - (Page 84) 84 • FEBRUARY 11, 2008 Is Chrysler-Plastech clash just the beginning? Automaker’s stance points toward more rifts with suppliers Robert Sherefkin rsherefkin@crain.com Plastech pending The next development in the showdown between Chrysler and Plastech comes on Valentine’s Day. But neither side is likely to bring flowers. When: Thursday, Feb. 14 What: Bankruptcy Court ruling on contract dispute To be determined: Will the judge allow Chrysler to terminate its contracts and recover its tooling while Plastech is in Chapter 11? At stake: Chrysler’s ability to move its business to Plastech rivals Plastech have returned to normal production after an interim agreement between the two sides, a Chrysler spokesman says. Three of the plants were down for a day, and one was idle for a day and a half. DETROIT — Chrysler LLC’s decision to break ranks with General Motors and Ford Motor Co. in dealing with a failing plastics supplier may foreshadow problems resolving future crises at other suppliers. That suggests the brief Chrysler production shutdown prompted by Plastech Engineered Products Inc. could be repeated elsewhere. Experts say as many as two dozen suppliers are distressed and could succumb as the Detroit 3 cut production this year. Chrysler’s go-it-alone stance cracked the unity the Detroit 3 long have employed toward struggling suppliers, say industry sources. And the Detroit 3 have fewer resources now to rescue troubled suppliers. “They just don’t have the balance sheet for it,” says John Casesa, man- In court this week This Thursday, a Michigan court will decide whether Chrysler was within its rights to terminate its contracts and prepare to remove tools from Plastech. Plastech blames its problems on lower production levels by automakers, increasing resin costs and a tougher competitive environment. It supplies about 500 parts to Chrysler, including door panels, floor consoles and engine covers. Automakers’ former united front broke down the morning of Feb. 1. Representatives of Plastech, GM, Ford and Chrysler were negotiating intensively, trying to patch together a bailout of the troubled supplier, according to people familiar with the talks. Suddenly, word came that at 10 a.m. Chrysler had handed Plastech officials a letter terminating its contracts with Plastech. Chrysler planned to pull the tooling used to make Chrysler parts. Without its Chrysler sales, Plastech’s cash flow would degenerate, crippling the company. Chrysler sent a team from at least one of its suppliers to assess what was needed to operate Chrysler’s tooling in a Plastech plant. But the team was called back after Plastech sought Chapter 11 protection in Bankruptcy Court. According to one of the staffers, the team received a call while en route telling it to turn around. A Chrysler spokesman declined comment. aging partner of Casesa Shapiro Group LLC, an auto industry financial advisory firm in New York. Twenty-six percent of U.S. auto parts suppliers are in fiscal danger, Stefano Aversa, an executive with turnaround firm AlixPartners LLC, estimated in a speech last December. Four Chrysler plants idled briefly last week because of the dispute with Price dispute Speaking to reporters at the Chicago Auto Show last week, CEO Bob Nardelli said Chrysler canceled its contracts with Plastech when the supplier tried to raise prices. “When we are confronted with a significant price increase, we have to respond in kind,” he said. He added that Chrysler would continue its push to shift those con- tracts to other suppliers. The purchasing departments of the Detroit 3 have cooperated behind the scenes previously on troubled suppliers, including the former Collins & Aikman Corp. and Tower Automotive LLC. Their troubledsupplier task forces have offered cash, loans, improved payment terms and manufacturing and management expertise. Bo Andersson, GM’s group vice president for purchasing, has said that teamwork has protected GM from lost production because of financially troubled suppliers. But the three automakers may not be able to return to consensus after Chrysler’s decision to bolt. That’s unfortunate, says a Detroit turnaround specialist. The Detroit 3 long have had a common goal. “It’s your problem this time, but it may be my problem next time,” he says. “There was a certain amount of speed and efficiency” with the established process, he says, “a sharing of the pain.” c Chrysler will pay for new-car fill-up Bradford Wernle bwernle@crain.com Support group To build support from dealers, Chrysler will Pay for a new vehicle’s first tank of gasoline Speed parts to dealers via UPS Cut inventory by more than 100,000 units to reduce pressure on dealers to take unwanted vehicles Offer discounts on certain wellequipped vehicles DETROIT — Chrysler LLC dealers are getting their gasoline money back. Starting March 1, Chrysler will restore to dealers money to give customers a full tank of fuel for new vehicles. Chrysler executives received loud ovations when they announced the change at dealer meetings across the country. The cost to fill the 21.1-gallon tank of the Jeep Grand Cherokee, for instance, is about $63. Under DaimlerChrysler ownership, the company took away the fill-up money in 2000 after rancorous meetings with dealers. The reinstated fillup is part of a series of retail initiatives the company is rolling out this month as part of Chrysler’s “New Day Celebration.” In a national road show Feb. 4-8, Chrysler LLC’s top sales executives — including co-President Jim Press, Executive Vice President Steven Landry and Chief Marketing Officer Deborah Meyer — revealed major changes to dealers. Chrysler also told dealers it will speed parts delivery to them by giving a key component of the business to UPS. Under Press, formerly Toyota’s top North American executive, Chrysler has been listening to criticism from dealers, many of whom were unhappy during the DaimlerChrysler era. For instance, Chrysler has reduced inventory by more than 100,000 vehicles because dealers said the factory was cramming unwanted cars down their throats. Chrysler also says it will give customers more equipment for their money on 12 vehicles. For example, Chrysler now is offering the Aspen Limited SUV equipped with a MyGig in-dash stereo hard drive and rear parking camera along with heated two-tone front seats and 18-inch chrome wheels at a discount. Customers pay $1,855 for a package worth $3,355, according to Chrysler. During the second quarter, Chrysler will start using UPS to ship parts that dealers can’t get from local parts depots. Dealers complain now that if parts aren’t available at the local depot, orders are referred elsewhere, usually The plan for product: Less duplication Mark Rechtin mrechtin@crain.com to the national depot. Then the order is shipped to the local depot before going to the dealership. Under the new system, those parts will be shipped by UPS directly from the national depot to the dealership. Dealers will be able to track the shipments using UPS’ tracking technology. c CHRYSLER Plan features advice — but no dough continued from Page cover Jim Press on Friday at the NADA convention: Why have 11 SUVs when three or four might do the job? financial position to make this a big bunch of checks and paydays. We need to do it with a process of working together looking at alternatives.” Press said he expects the revamping of the dealership network and product lineup to be completed in four or five years. JOE WILSSENS Where’s the money? For some dealers, the lack of money could be a big problem, said Sheldon Sandler, founder of Bel Air Partners, a Princeton, N.J., firm that brokers dealership transactions and offers dealers financial guidance. “I think that they’re looking at a very, very difficult proposition, one they don’t fully appreciate,” Sandler said. “Another way of saying it is: Show me the money.” Sandler said the biggest obstacle to getting buyers and sellers to agree on a transaction price is real estate. “Dealers quite often have an inflated idea of what their property is worth,” he said. “Once you eliminate that operating entity, it becomes a piece of property without that operating asset on it. That really complicates the deal.” Without making a pot of money available, Chrysler will have trouble getting dealers to consolidate, says an executive at a large public dealership group with Chrysler stores. “These things would have happened by now if they had put money in it,” said the executive, who asked not to be identified. “The problem is you have sellers who don’t want to sell and buyers who don’t want to pay. “There are not a lot of buyers of Chrysler deals out there because nobody’s sure how long Cerberus is going to stay.” Blue-chip teams Chrysler says the new framework will speed the process along. To make deals happen, the company is forming “business solutions teams” to go into each metro area to help dealers overcome obstacles. “We’ve done a couple of market meetings already,” said Steven Landry, executive vice president of North American sales. “Each of the business centers will hold metro market meetings” and review the volumes in those markets. Room to breathe Landry said Chrysler then will hold “individual meetings with dealers and review whether they want to be a willing buyer or willing seller.” Chrysler wants dealers to have more room so they’re not poaching sales from one another. Chrysler built its network in the 1970s and 1980s, when the Big 3 ruled. The network in metro areas grew into a patchwork of singlebrand stores or odd combinations. In meetings with dealers last week, Press and Landry used the Boston metro area as an example — and the cuts envisioned apparently are deep. Boston now has about 22 dealers with Chrysler franchises; the company would like to see that number cut to eight, each selling all three brands. “Competition has put us in the position where dealerships are seven, eight miles apart,” Landry said. “We want them to be 25
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